What Are Common Articles in Business Contracts?

The specifics of business contracts differ, but most share similar common elements. Most business contracts will include the following sections:

Representations

Covenants

Conditions

What is a Representation?

A representation is a listing of the parties involved in the transaction, the date of the transaction, and the item or service involved in the transaction. It is a way of saying "here is what I am all about and this is the deal we're going to make". This is done most often to satisfy the Statute of Frauds, but it is also commonly done to clearly state the will of the parties and to clarify the transaction to be made. Conflicts usually arise only about the date of the transaction because it may affect insurance and liability. Mistakes or misrepresentations about the deal are only dealt with after the fact. Representations deal only with the present or the recent past.

What Is a Covenant?

A covenant is a promise or agreement by a party which relates to a period of time. It is a way of saying "here is what I commit myself to do, and here is what I promise not to do, after this agreement has been signed and the closing date". Examples of covenants to do something include allowing the other party to investigate their credit or assets, paying taxes, and applying for any necessary permits. Examples of covenants not to do something include not dealing with other potential buyers, not sabotaging the business, and not making large purchases or sales that alter any assets. The majority of covenants tend to fall on the seller because the seller usually seeks money from the buyer, which requires few covenants beyond showing up. Covenants relate to the future and cover the time before closing.

What Is a Condition?

A condition is something that must be true or must occur for a deal to close. It is a way of saying "here is what you are entitled to get from me at or prior to the closing. If you don't get it, you can walk away from the deal". A typical and safe condition is that every representation made by the seller will still be true at the closing date. Another typical condition is that the seller must have some confidence that the buyer can indeed make the purchase, usually by a credit check made by an independent accountant or lawyer. Conflicts frequently arise as to whether a small mistake is enough to allow one party to walk away from the deal, especially if one or both parties smells a rat. Conditions relate to the future and apply at the time of closing.

Do I Need an Attorney to Help Me With My Contracts Issue?

This provides only a general overview of the articles you may find in a business contract. The intricacies of your specific contract should be read and reviewed by an attorney is there is anything you do not understand or if you believe you are in over your head. An experienced attorney will be able to explain in detail every part of your contract, and recommend changes and additions so that in the future you can avoid the possibility of a future breach of contract situation.